Finance tips for new landlords as investment loans soar

Australia’s 2.2 million real estate investors have been busy in the past year, and mortgage specialists say there’s one thing they must do first.

Property investment has surged in popularity as the housing boom puts dollar signs in the eyes of would-be landlords, and new numbers tell the story.

The value of investment loans has climbed 69 per cent in a year, according to fresh Australian Bureau of Statistics data, while the nation’s average mortgage size rose 17 per cent annually to almost $636,000.

Mortgage brokers say new and existing real estate investors should sort out their finances first before bidding, and have shared some important tips when applying for an investment loan.

Rebecca Jarrett-Dalton, founder of mortgage broker Two Red Shoes, says before approaching lenders make sure you have a clean credit history, understand your expenses, and have paid off unnecessary debt – especially “bad” debts that are not tax deductible.

Rebecca Jarrett-Dalton says offload bad debts first. Picture: Dylan Robinson

“There’s a huge benefit in offloading any unnecessary debt – a $10,000 credit card limit can mean an $80,000 reduction in borrowing capacity,” Jarrett-Dalton says.

“Make sure you are meeting your existing repayments,” she says. “Your credit history may include up to 24 months of repayment history, and many lenders give this a lot of credence.”

Jarrett-Dalton says getting pre-approval for an investment loan is important.

She says people often assume loans will be approved if the repayments are covered by the rent “but the reality is the way lenders assess the rent is very different and you may find yourself falling short”.

“The risk is you could lose a holding deposit at least, and potentially waste your time and money on inspections and reports – or in the worst case lose your deposit and more.”

Digital-first mortgage broker Finspo’s chief executive officer, Angus Gilfillan, says the surge in investment lending has come at the expense of first home buyers, whose loan lodgements are down 24 per cent.

Finspo CEO Angus Gilfillan says property investors are looking further afield.

“The data supports the view that first home buyers are being priced out of the market by investors over the last 12 months,” he says.

Gilfillan says investors have been increasingly looking further afield into regional and interstate areas “where there might be attractive yields or potential for capital growth”.

He says investors should know their buying power and optimal loan structure before bidding, and should have an “expert in your corner”.

“Interest-only loans are generally slightly higher price but have many benefits for investors.

“It is always a good idea to discuss your plans for an investment property with an accountant too as they have expertise regarding the tax implications of different strategies.”

Originally published as Finance tips for new landlords as investment loans soar